Ownership Options
The term for freehold title in Indonesian language is Hak
Milik. Although there have a numbe of legislative committees
formed since the early 1990's to discuss liberalizing foreign
ownership rules, Indonesian law does not yet permit foreigners
to hold this form of title.
Leasehold (or Hak Sewa)
This is a contractual agreement between the land owner and
the foreigner. While leases are often notarized documents
they have no official record of existence in the Lands Department.
As such there can be difficulties in enforcement when there
are conflicting documents or multiple lease agreements (not
so uncommon given Balinese land is often owned by extended
families).
Nominee structure
Similar to the above this is a contractual agreement - in
this case between a foreigner and an Indonesian national
whom he nominates to hold the Hak Milik title (on his behalf).
This structure typically has several agreements (such as
right to use and right to sell) as well as a mortgage agreement
which states that the Indonesian nominee has borrowed the
money in order to buy the property.
Corporate ownership
A foreign investment, limited liability Company incorporated
in Indonesia is commonly known as a PT PMA. All Indonesian
companies whether they are Indonesian-owned or are foreign
invested, are allowed to hold a 'Right to Build' title called
Hak Guna Bangunan (HGB). In this case the freehold title
( Hak Milik) is relinquished to the state and the company
is given possession of the property under a right to use
title (normally) granted for a period of 30 years with rights
of extension (+20 + 30 years) - each extension subject to
tax.
The 'Right to Use' (Hak
Pakai) - Recommended Ownership
Option
It is recommended that purchasers
take advantage of the leading ownership structure now permitted
by the National Land Agency in Bali known as the Hak Pakai
over Hak Milik title.
Hak Pakai means "Right of Use" and is the only certificate
of title to land, recognized and sanctioned by Indonesian
law, which can be held personally in the name of a foreign
purchaser. The Hak Pakai title is not a lease as the Hak
Pakai certificate of title actually issues in the name of
the foreign owner and the owner's interest is noted as an
encumbrance on the Hak Milik title unlike a leasehold structure.
A special variation to the Hak Pakai title is known as "
Hak Pakai atas Tanah Hak Milik" which means
"Right of Use over Freehold
Land". This form of Hak Pakai title effectively "floats"
above and charges the underlying freehold Hak Milik title,
which is reserved exclusively for Indonesian nationals.
The freehold Hak Milik owner grants the purchaser a Hak
Pakai title of an initial 25 year term with three prepaid
twenty-five year renewals thus providing one hundred years
of secure ownership tenure to the property.
From an investment and asset protection aspect, while providing
a legal and clear direct title to the foreign owner, this
structure also offers the benefit of preserving the underlying
Hak Milik title. Among all the other forms of ownership
title ( Hak Sewa, HGB - Hak Guna Bangunan, Hak Pakai - Right
of Use with underlying Hak Milik extinguished), the Hak
Milik is considered the valuable and easily transferable
and mortageable by all financial institutions. Thus the
usage of this ownership structure protects the underlying
strength of the asset.
NOTICE: THE ABOVE EXPLANATION IS FOR INFORMATION
PURPOSES ONLY AND IT IS RECOMMENDED THAT POTENTIAL PURCHASERS
SEEK INDEPENDENT LEGAL ADVICE IN INDONESIA WITH REGARD TO
THE PROPOSED PURCHASE. SUBSEQUENT TO THE PURCHASE, LEGAL
ADVICE SHOULD BE TAKEN IN THE HOME JURISDICTION OF THE PURCHASER
WITH REGARD TO WILLS AND SUCCESSION PLANNING FOR INDONESIAN
PROPERTY.
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